Sonu Varghese
Data Shows The Economy Is Clearly Running Hot
The evidence for a hot economy keeps racking up. As I see it, the industrial economy is clearly in a boom on the back of enormous AI-related investment. A lot of folks pointed to a slowdown in payroll growth in recent months to counter that, nevermind the fact that the unemployment rate is near historical …
Sonu Varghese
September 4, 2026
How AI May Impact the Labor Market and Interest Rates
Fed Chair Kevin Warsh’s speech in Jackson Hole last week captured a lot of headlines for its hawkish tone. The longest speech given by a Fed Chair since Janet Yellen in 2017, Warsh’s comments had a lot more than a description of the economy (hot) and policy rates (not restrictive). What didn’t get too much …
Sonu Varghese
September 2, 2026
Should Interest Rates Be Even Higher?
Last week, Treasury Secretary Scott Bessent said that the Treasury was doing their buyback program (of 10- to 30-year treasuries) because yields on the long end of the curve didn’t reflect fundamentals. Via Yahoo Finance: “We have a big toolkit. Part of it is signaling here to show that we believe yields don’t reflect the …
Sonu Varghese
August 26, 2026
The AI Buildout Needs a Lot of Money— Enter Debt (and Financial Engineering)
I’ve written a lot about how tech capex spending by the hyperscalers is set to run around 2.5-3% of GDP in 2026 and 2027. What’s striking is how fast the estimate keeps moving higher. Coming into this year, 2026 capex was projected at $515 billion. After Q2 earnings it’s $775 billion, and 2027 is above …
Sonu Varghese
August 19, 2026
Fiscal Deficits Are Exploding, and That’s a Problem
I’m not one to usually worry about government debt but I believe we have a problem, folks. Inflation’s elevated and AI needs a ton of capital to finance its buildout, both of which would normally raise the cost of capital, i.e. interest rates. But on top of that, we’re running unprecedented fiscal deficits. Via the …
Sonu Varghese
August 18, 2026
The State of the American Consumer in 11 Charts (They’re Fine)
Every time we get a soft consumption print, concern rises that the consumer is tapped out. This time it’s retail sales, which fell 0.6% in July, while core retail sales (excluding autos and gasoline stations) fell 0.4%. But Amazon Prime Day shifted to June, pulling sales forward. Zooming out, retail sales have run at a …
Sonu Varghese
August 14, 2026
Inflation’s Still A Problem, And Consumers Are Feeling The Heat
We’ve got a bit of a breather on the inflation front, with two consecutive benign readings. Headline CPI rose at an annualized pace of just 0.9% in July, after falling 5% in June, taking the 3-month annual pace to just 0.5%. Headline CPI is still up 3.4% from last year, reflecting an energy shock that …
Sonu Varghese
August 13, 2026
Payrolls Are Looking Shaky Once Again, But the Labor Market Is Fine
Last month I wrote that the payroll data threw us a bit of a curveball, and here we are again. The economy shed 23,000 jobs in July, well below expectations for an 80,000 gain. The headline number looks ugly, but payroll data comes with a lot of noise, and the noise has been especially loud …
Sonu Varghese
August 7, 2026
The Fed’s Going to Let It Run Hot (Until They Don’t)
Federal Reserve (Fed) Governor Chris Waller recently said that sternly staring at inflation until it melts before our withering gaze is not an option. Yet that appears to be exactly what the Fed plans to do. The Fed kept rates unchanged at its July meeting in a 9-3 vote, with three dissents showing the committee …
Sonu Varghese
July 30, 2026
If The Fed Can’t Print Oil or Chips, Why Are We Talking About Rate Hikes
The Federal Reserve’s next meeting is this week (July 27-29th), and the level of uncertainty around what they may do is the highest we’ve seen in recent years, especially this close to a meeting. The probability of a rate increase is 37% (as priced by the futures market), which is as good as a coin …
Sonu Varghese
July 28, 2026